Subscribe to Dollars & Sense magazine. Recent articles related to the financial crisis. T.D.C.o.t.E: The Mendacity of HopeThe Dull Compulsion of the Economic (xvii)A series of blog postings by D&S collective member Larry Peterson The Mendacity of Hope: Obama's Healthcare Speech President Obama's speech to Congress on healthcare has been generally well received since it was delivered Wednesday evening. Commentators have focused on the President's charisma, of course, as well as his intelligence; but what was different this time was a pronounced hint of determination in the face of considerable adversity: and this is something we've yet to see from the young president. But the question then arises: what is there for Obama to be resolute about? The speech featured the submission of a comprehensive presidential plan (which had been hitherto lacking: the president has been content, up to now, with letting members of Congress write the competing bills). The main feature of the plan consisted of a deal--some would say with the devil--with the insurance companies, pharmaceutical companies and for-profit healthcare providers: in return for losing the right to drop insurance for preexisting conditions, jack up deductibles and out-of-pocket expenses, and discriminating against customers based on age or even geography, individuals would be mandated to purchase health insurance, or face a financial penalty. Employers, too, would have to offer insurance policies to their employees, or pay a stipulated amount into the insurance fund (the so-called "pay-or-play" provision). Subsidies and exemptions would be provided for small businesses and the indigent, and a fund would be established to protect individuals with preexisting conditions who, under the plan, wouldn't be eligible for coverage until 2013. Such a plan would control costs in a definitive way in only one regard: it would force some thirty million people or so to purchase insurance (a good amount of these are children, and will be covered by their parents). And the savings to the system that would accrue from the proper funding and even avoidance of expensive emergency-room treatment of uninsured persons would indeed provide some offset to the relentless upward pressure in healthcare costs. But there was almost nothing else in the speech about containing costs, especially over the long term, as the population ages and the financing of Medicare(not to mention Medicaid) becomes a serious problem in its own right. Instead, the President played with the politics of the public option and spoke of offsetting the entire cost of the program--set at $900 billion over 10 years. Regarding the public option, the president brought it up merely to offer it as a potential sacrifice for measures that have yet to be put articulated--never mind put forward, especially by Republicans--as presumably equally valid means to one specific end: the controlling of health care costs. And on financing the program--providing all the subsidies and exemptions for many of the tens of millions who will be absorbed into the system--Obama claimed that all of the $900 billion should be capable of being offset by savings to the system that will be the result of the cutting of huge amounts of waste in the system. Many say that he won't be able to come up with even half of this figure. So what's wrong with all this? First of all, the idea that the insurers should be compensated for dropping some of the most despicable policies in America is absurd: the denial of preexisting conditions and so on has become a national scandal that should simply have been abolished outright. But such policymaking fits into the Obama notion of change very well: look at the banks, for example (and it's interesting: of all the things that aroused ire over the health care plan, pundits have yet to acknowledge that its timing, coming right after the bailout of the banks, may have played a major role in enhancing the negative connotations the program was capable of arousing, precisely because it is--somehow--a "government" program, and, as such, open to the sort of gaming that has come to characterize the banking bailout). Then there's the question of cost control. The reason why no Republicans or conservative Democrats have sought out the President's open door is because there simply is no clear way to even hope to control costs in the shorter-term other than through the implementation of a robust public option, or, even better, a single-payer system. Again, like with the banking system, we are in completely unchartered territory, and the signs of systemic health do not look promising. Obama said that he was reluctant to embark upon more ambitious measures like single-payer because he feared that potentially major disruptions involving nearly one-fifth of the economy were simply unacceptable to Americans. But he himself has acknowledged that the health care system as we know it is turning into an unsustainable drag on the economy. So--how do you combat an unsustainable drag, which is only getting bigger by the year? By implementing policies that more than anything else are chosen because they do not cause disruption? And this while disruptions--in finance, the labor market, you name it--are becoming the order of the day in so much of the rest of our daily lives? So where cost control is concerned, Obama seems to be asking us to trust him and the legislators he's reaching out to (some/most of whom, no doubt, are raking in wads of cash from big pharma, the insurance lobby and for-profit hospitals). It is conceivable that, although Obama pointedly didn't mention this in the speech, a "trigger" mechanism of some sort may be built into legislation, perhaps mandating some kind of public option if costs aren't sufficiently contained. But maybe not; and at this point, given all the prior hemming and hawing, it's hard to trust the administration on this score, never mind the Blue Dog Democrats Obama is looking to sway. It's quite possible that the establishment of heath care co-ops is as far as the latter will go, and who's to say that they won't demutualize or something even if costs are--relatively speaking--constrained for a few years, once/if things get back to "normal"? In the longer-term, though, the gamble grows more desperate: so many of the things that make the US healthcare system so very expensive, and at the same time so ineffective--the proliferation of specialists to the detriment of general practitioners, the emphasis on treatment of diagnosed conditions to the detriment of preventative medicine, the ludicrous sums spent in the last year of life (and especially to the extent that the latter command outsized levels of pharmaceutical and technology spending), the malpractice premiums, the ever-duplicated paper trail that wends between insurers, hospitals and bureaucracies, and even the President's beloved medical information-technology (also unmentioned in the speech) initiatives--there are no proposals to harness any of these for the sake of cost control. I suppose the President feels that to tinker with any of them would risk interfering with the sacred marketplace. But these factors play a big part in pushing costs up. And though, as noted before, the individual and company mandates may mitigate against the upward spiral somewhat, it is a crap shot at best, and more likely a desperate--even irresponsible--gamble to assume that these mechanisms alone will contain costs in anywhere near effective a way so as to convert the healthcare sector from being a drag on the economy to being a sustainable source of growth (not to mention turning it into a system that actually improves the health care indicators, and, by extension, the productivity--and well-being--of the people). And even if some kind of public option finds its way into legislation, there is a further worry: President Obama himself made a very unfortunate comparison on Wednesday when he spoke of the public university system as a successful--and popular--check on higher-ed costs. But, as we all know, in education the public alternative has been becoming less-and-less available as public costs follow those of their private competitors upwards: hardly a felicitous precedent for a public option that stands to be much, much weaker, in terms of its financing, than public universities. And then there's the question of quality: will quality decline for those who choose the public option, especially seeing that the funding is set to be so delicate? Will there be huge waiting queues like those we've endured here in Massachusetts for those forced to go on a system that doesn't have the capacity (remember the relative shortage of GPs here) to absorb the newcomers anyway? One other proposal was left unmentioned during the speech: the removal of the tax exemption for businesses that insure their employees. Presumably Obama is looking to his supporters amongst unionists here, seeking to appeal to their worst instincts to prevent them from demanding payback for getting him elected by insisting on single-payer. But this exemption, which has wrought so much havoc on pay scales in this country for so long, will presumably be allowed to distort them unabated. In a time of economic contraction like we're seeing, the continued drag on wages already reeling from the crash seems destined to hinder economic recovery--and screw up innumerable lives--in a major way. Surely Obama sees that? But, at the end of the day, the dirty little secret about American health care is that it uniquely sets different parts of the population against each other. And it does so in a way that is the inverse mirror image of that which is supposed to hold sway under competition: seniors with Medicare, the insured with employer-provided, tax-exempt healthcare, and the uninsured who must subsidize both, but who risk the running up of huge bills which fall on the insured (and increase their bills) if they can't stay out of the system, are all induced to get what they can out of the system at the expense of other groups. And the insurers and providers are all too eager to assist in this game, ordering expensive tests for some, denying those they can, and hoping that those left by the wayside won't form a common cause to overturn this rotten system. So far it has worked, and it looks like it will work again, whether or not a health care bill is passed. On Monday, on what is euphemistically known as "Labor Day" in the US, I was with thousands of demonstrators on Boston Common, rallying for healthcare reform. It was very strange. I, like many of my comrades there, found myself cheering for two opposed policies whenever they came up: single-payer and the public option. It was almost surreal, to use the cliche. What were we demonstrating for? The same thing, I suppose, that President Obama was calling up his commendable resolution about: the perceived necessity of a fudge. Obama is a unique political figure in that he has corralled his undisputed charisma to advance the agenda of discredited--but, in the eyes of the administration, indispensable--elites by putting a somehow positive spin on a palpable sense of his supporters that things are bad and getting worse--intolerable, even. This is the "hope" he speaks of with seeming conviction. That his most important policy stance--the one on which he has said he will risk his presidency--is so obviously defective, from so many standpoints, reveals in a particularly stark way the despair with which he must, in lucid moments, view his signature emotion. Labels: Barack Obama, health care reform, insurance industry, Larry Peterson, Medicaid, Medicare, pharmaceutical industry, public option, single-payer, the dull compulsion of the economic Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). T.D.C.o.t.E: An Ugly SceneThe Dull Compulsion of the Economic (xvi)A series of blog postings by D&S collective member Larry Peterson An Ugly Scene This morning I was party to an unpleasant, and rather absurd encounter. I almost always take my morning caffeine injection at a local (Cambridge, MA) establishment, the Crema Cafe, which, unusually, has a relatively long common table. At this table, people unrelated to each other can sit together without feeling Anglo-Saxon anxiety at the idea that they are in the intimate presence of strangers. This morning I settled down at the table virtually alone, when members of a group slowly began congregating around me. As the group gathered, and the conversation developed, it became clear that these were students at Harvard Business School, who were reacquainting themselves after summer recess. All very normal, right? Well, as I continued to read my newspaper, the conversation centered on the various internships the students had been involved in over the summer. One student did hers in Philadelphia, and another was just back from Moscow. Another, who (on account of his age) may not have been a student, but a teacher, had been traipsing around Amsterdam. All of them seemed to be doing private equity work of some sort. As I sat there, I became more and more angry. I suppose it was the kid from Moscow who set me off: here he is, coming from a country which has seen its GDP drop by close to 10% in the last year, seemingly interested only in recounting his daily routine: how many hours he worked, what the nightlife was like, that sort of thing. But that's no big deal: it's normal among friends to focus on things like this when they first meet up after a while. Why was I so upset? My frustration with this question amplified my original annoyance, which was itself exaggerated by what my eyes kept glancing over. I was reading the Sunday New York Times print edition, and I kept looking at an article I posted yesterday on this blog, about how Wall Streeters are developing products to get the elderly to sell their life insurance policies at a loss for a larger up-front sum than they can get from the insurance companies, which would be securitized, a la subprime mortgages, and provide potentially high winnings for investors if the previously-insured died prematurely (the revenue streams would go towards paying the premiums the former holders didn't want to pay anymore). Considering that at least some of the sellers must be selling precisely because they got saddled with mortgages that have gone bad, the whole idea made me sick. But this didn't necessarily have anything to do with those at the table. And I just kept getting angrier. Finally I finished my coffee and went to leave. As I passed on the way out, I excused myself and said some stupid things to these people, which must have appeared even more stupid because my voice tends to crack when I get all hot and bothered. I told them that they, prime examples of the jet-setting, super-networked elite, made me sick with their internships and elite pursuits. After this outburst, I was so mortified that I beat a hasty retreat, but one of them followed me out of the cafe and challenged me: why didn't I just move away from them? I responded by going a little--only just--deeper, and offering a boilerplate denunciation of the kind of mentality fostered in business schools, which wrecked the global financial system and screwed up innumerable lives. I was becoming even more horrified by my pathetic performance in elucidating the obvious, though, and continued to leave. Finally, she administered the coup de grace, spoken with contempt, of course, rather than feeling: "I'm sorry you're unemployed!" At this point I was transported, through no effort of my own, from the ridiculous to, if not the sublime, a major fault-line in relations between the incipient elite and the rest of us in a time of an economic contraction of historic proportions. In the rest of this post, I'll try to explain what this fault line consists of. The chief implication of the woman's rejoinder, to me, was that I was animated primarily by resentment, which was certainly true. But what was interesting to me was the following: first of all, I'm not unemployed, but--even worse for me, as I could be making more if I was collecting unemployment, based on my last employer's wage--seriously and perilously underemployed (I'm working at a temp job for $9 hour in expensive Boston right now, two years after leaving my last permanent position). Second, there's no way she could have known, based on my dress, my speech, my reading material, appearance or anything like that, what my class or occupational status was, unless I had gone off the handle like I did. One of the chief characteristics of the elite these days is that they, unlike their forebears, go out of their way to look and talk not only like "us", but like an absurdly representative everyman: hence Obama and Bernake appearing with identical open collared shirts and blazers on Martha's Vineyard a few weeks ago, Steve Jobs' grungy black-turtleneck/jeans combo, etc. Back to the original point, though, my--not even class, but class-attitudinal (itself conditioned increasingly by consumer choice)--status was made clear to this woman by my imputed resentment. Resentment at what? To her, and I'm guessing here, I was some unemployed guy, who, while enduring a temporary hardship, would, "when things pick up", find myself in a similar position to the one I had, able to resume the lifestyle to which I was accustomed, and we'd all live happily ever after. After all, in the words of so many well-meaning people, "something will turn up." Thus, my contention with them had no basis in fact, and I was merely fulminating, and I should, like my betters, just stop whining and, even if I get pissed off, move away. But there may have been something else: in another time, I could see someone similarly placed responding with a hearty "get a job!" Today, this exhortation is not available. The future business leaders of today do not even have the luxury of entertaining ideas that they are creating jobs and generating conditions for upwards mobility for those of us who aren't so resentful and uppity that we don't recognize an opportunity when we see one. So they offer faux sympathies for those temporarily--and this qualification remains the key assumption for them, even though all evidence is pointing to the contrary (the great majority of job losses in this recession are permanent, the periods spent unemployed are rising, the workweek is plummeting, etc; and workers in certain demographic categories are being hit exceptionally hard)--indisposed, hoping they'll get a grip and avoid further embarrassing themselves with impromptu protests about things no one can do anything about anyway. And to me, this sheds light on a key feature of today's elite: they may look and sound like us (or like the ever-shrinking economic, if not cultural, "middle-class"), but they are in one important sense different from their forebears: they tend to work extremely hard; and, far from being a leisure class, often do not allow themselves anywhere near enough space to properly enjoy their trophies. One consequence of this is that they have no time: constantly engaged in projects, internships, charity work, networking and so on, they require a vast sector of glorified servants in the service industries to allow them the means to perpetuate not only their privileges, but even to cushion their competitive advantages (by providing them with timesaving, educational, regenerative leisure and other services increasingly out of reach for the general population) in the workforce. And that means that they don't necessarily reflect on what should be obvious to them merely by looking around. And they certainly don't realize the extent to which they enjoy extraordinary privileges: after all, they've worked for it, right? But consider these internships. Recently an increasing amount of attention has been placed on the importance of internships to career success. It's got so bad, in fact, that desperate parents are paying so their children can be, well, unpaid laborers. This in addition to ponying up for skyrocketing educational bills, starting with day care and on to test-prep and then on to elite college tuition. When I was young, virtually no one did an internship or volunteer work--most kids worked in restaurants or stores; now it's becoming not only a cost of doing business for the elite-to-be, but a modern form of indentured servitude for middle-class students who can still get the work. Everywhere, students are being pressured to do this sort of work in order to gain a foothold on the corporate or government ladder, and if you don't do it, you are going to be less connected--and probably less employable--than those (who almost always come from families with larger pockets) who do, or simply can afford to do so. But even those in the latter category are still working their butts off--so they "deserve" it. I have to wrap this up soon, even though I'm highly dis-satisfied with my armchair theorizing on a complicated topic, and with the fact that I made a fool of myself to no effect this morning. But there's one thing I should mention in closing. There's one thing the geniuses at Harvard Business School still need me for: my propensity to consume. And, after the bursting of a bubble which desperately sustained obviously unsustainable levels of consumption on several levels--economically, financially, environmentally and even politically (impact of consumerism on the decline of political consciousness, etc)--that's not something that's going to materialize unless some of the elites--not to mention the rest of us--start getting as animated about the dire state of the labor market as I was this morning. And it's not likely to happen if we confine our protests to comic scenes at a little cafe. Labels: income inequality, labor, Larry Peterson, the dull compulsion of the economic Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). T.D.C.o.t.E: Rajan's Ineffective DemandThe Dull Compulsion of the Economic (xv)A series of blog postings by D&S collective member Larry Peterson Raghuram Rajan's Ineffective Demand As investors and policymakers in the west have become disheartened by the marked failure of the western consumer to resond to the heroic stimulus and recapitalization measures taken by their governments this year, there has been a tendency amongst observers of the economic scene to look for transgenic varieties of the already withering green shoots taking root in the--in many ways--far more forbidding soil of emerging markets. The latest to succumb to this tendency is former IMF chief economist Raghuram Rajan, who, in an op-ed in today's Financial Times (here's an indirect link to the article, courtesy of ninemsn Money), tries to find the magic formula that will result in a robust form of Asian consumption to pull the global economy out of its doldrums (and in a more balanced way, no less). Rajan's basic idea is to reconfigure the global supply netorks such that emerging markets will, rather than providing lower value-added manufacturing for products designed with western consumers in mind, as is the predominant model now (Rajan uses the example of an iPod, in which 3/4 of the value added is provided in the rich world, while only 1/4--corresponding to the manufacture of the item--takes place in emerging markets), involve higher value-added design, marketing, advertising and even financial (he doens't mention legal; I wonder why...) capacities. He goes further in saying that such a move would create much economic value, precisely because such a transfer would orient production toward pent-up emerging market consumers, whose stifled consumption is to a great deal due to the failure of western multinationals (hopelessly tied by the umbilical cord of rich-world demand) to meet or anticipate their needs. Accordingly, Rajan refers to the example of the Tata Nano, which wilfully "leapfrogs" the temptation to penetrate western markets (which demand sturdier family vehicles like SUVs) to fill a widening niche in India: as a cheap form of transport, but one that, given India's poor roads, does not need to emphasize safety, both because of the congestion that slows all vehicle transport down, but also because the vehicle is cheap enough to serve as a substitute for more dangerous family forms of transport, like single motor-scooters (he speaks of the perils of fitting driver, wife with baby, and number two son on the seat of one scooter), anyway. So, according to Rajan, the more the higher value-added cacities involved in anticipating local demand are transferred from rich-countries to the developing world, the greater local demand will grow, which will, in turn, generate greater local employment, both in higher- and lower-value-added jobs, which will increase demand all the more, and so on. Thus will the emerging country consumer save an over-indebted and demand-constrained world from itself. So what's the big problem? To my mind, there are two. First, Rajan assumes that companies, politicians and voters in the west will just sit back and allow this to happen. In fact, the only thing he says at all on this score is that rich countries will benefit as poorer countries grow rich. But growth in employment in many western societies is focused in two areas: one involves many of the the very sorts of activities Rajan focuses on. And these industries hardly compete with manufacturing (used to do) where job creation potential is concerned anyway. But many more workers cast off from acccelerated technological change and further losses among traditional employers (especially in manufacturing) find theuir way into lower-end service industries, in which demand is becoming now becoming more elastic as labor conditions decline precipitously: luxury services catering to the (shrinking ranks of the) affluent (especially as the high-end of the housing market languishes even behind the low-end one) or which play on the hidden costs of the celebrated worker flexibility in the US (day-care is the best example). In the latter case, other arrangements are replacing employed day-care, especially as more unemployed people are able to provide that care. In other cases, such as beauticians, such services are completely substitutable by nonmonetized activities. Moreover, as Dean Baker has consistently maintained, considerable obstacles to the replacement of service workers exist in the US already; and given the political power of those holding these jobs, any movement to liberalize services at a pace required to make Rajan's scheme truly effective would seem to be a pipe dream at present. But there is another shortcoming, involving the developing countries themselves. Though savings rates in these countries are often extremely high, much of the savings, especially in China, come from the corporate sector, and even in the household sector, savings need to be kept at a high level because health care, education and social security benefits are scarce or nonexistent. China has rammed through reforms in its health care provision, but these will take some time to implement, and considerable doubt has been cast on their comprehensiveness or even potential effectiveness. So consumption will continue to be constrained in these countries by poorer employment outlooks than those that held for the hypercharged years that have just ended. Beyond this, the lack of consumer finance in these countries is a factor. And though some would this is precisely an argument to open these countries up to the services of western financial institutions, I would argue that rapidly leveraging-up rural consumption in China, say, could lead to the development of a kind of unsustainable triangle like that which is plaguing Europe now, which has seen peripheral (Baltics, Greece, Italy and Spain) consumption, dependent on central customer-finance (Germany), except on a far more massive scale. And we have the example of South Korea, hobbled by a wave credit card debt the last time consumer finance was supposed to come to the rescue of a bubble-economy in Asia to serve as a warining on this score. Ultimately, the the double squeeze on labor worldwide that is the source of the problem. Workers in the rich world have been pitted against workers being paid far less in other parts of the world, but copious amounts of consumer credit have disguised this somewhat, and increased demand in the poor world to such an extent that rapidly rising wages there could offset somewhat cutbacks in social provisions demanded by of macroeconomic planners hell-bent on transformational, if haphazard, global integration. So ramping up demand in one part of the world to the exclusion of the other is a fool's game. The US (and UK) economically requires a heroic deal of capacity to be re-sent to it to re-balance its current-account deficit, while emerging countries continue to covet whatever rungs of the value-added ladder they can get a foot on, and sink huge amounts of capital on the rungs (China's stimulus program, which involves far more money per head that any western stimulus) currently unoccupied. This stickiness means that both high levels of debt and the lure of protectionist temptations will be inevitable in the medium-term, regardless of the economic case that can be made for a vast transfer of capacity of the sort Rajan is arguing for. And this will only be extended as the cost of ignoring climate change becomes ever higher, as the costs are set to rise precipitously if the problem isn't tackled. Only a solution involving workers in all markets, more or less simultaneously, will be capable of defusing the kind of medium-term social unrest that will lead to the derailment of recoveries by protectionism, the accumulation of debt, or inactivity regarding climate change. Unfortunately, it looks like labor itself is at present unable to bridge this gap. Labels: bailout, Dean Baker, Environment, financial crisis, Larry Peterson, Raghuram Rajan, supply chains, the dull compulsion of the economic, Trade Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). T.D.C.o.t.E: Persistence of Idiocy in EconomicsThe Dull Compulsion of the Economic (xiv)A series of blog postings by D&S collective member Larry Peterson Greg Clark and the Persistence of Idiocy in Economics Recently there's been a lot of ink spilled in the financial press about what responsibility, if any, should be acknowledged by economists regarding their role in not sufficiently anticipating the onset or the extent of the current economic crisis. Sometimes reading this stuff is exasperating to the point of annoyance, or even anger, like when Alan Greenspan gives his suggestions for fixing a financial system he obviously had a huge role in destroying. But nothing has made me more angry recently than a piece I saw a week ago. At the time, I didn't even think it was worthy of a response (I know, not that a response from me would matter a whole lot, anyway...). But all week it weighed on me: how was it that such a terrible piece could be taken seriously by anyone in the first place? And taken seriously it was: The Washington Post opinion piece, "Tax and Spend, or Face the Consequences," by UC-Davis economics chairman Gregory Davis, was linked to by at least three of the most visited econ blogs: (the usually good) Economist's View, (the usually awful) Marginal Revolution, as well as (the always pompous) Brad DeLong, and I also saw it on the Economic History Blog. Clark has recently written a book, A Farewell to Alms, which is a silly and preposterous title, as anyone who has had to fight his way, as I just did moments ago, through city streets full of beggars and (far more annoying) solicitors for charities. But his book purports to be no less than "A Brief Economic History of the World." I managed to make it through about fifty pages before almost throwing the book out the window in disgust: his crass technological determinism coupled with institutional Malthusianism does a disservice to serious research in economic and technological history. But this book isn't what I want to talk about here: I'll confine my remarks to the article. Clark's basic line is that technological change will force society, or "us"--whoever that may denote--to choose between subsidizing a growing number of "socially needy but economically redundant" people, or "confront growing, unattended poverty." After seeing off the current financial crisis as a "minor blip," Clark opens his piece by stating where the real challenge will lie: In the next chapter, abundance beckons--for some. Advances in technology drive economic growth, and there is no sign that they are slackening. The American economy is likely to continue unabated on the upward path that began with the Industrial Revolution. Despite the nonchalant tone in which this simply unacceptable--morally speaking--idea is couched, it is hardly a novel one: serious scholars like Richard Sennett (but he's not an economist, only a sociologist...) have been researching and writing about the plight and diminishing prospects of the modern "precariat" for some time now. But, to Clark, there's nothing to do about it: consumers' preference for technology, presumably, simply demands massive labor-saving substitution such that only the most "skilled" will be able to outperform machines. So the challenge for policy will be reduced to figuring out a way for the "winners"--those who still can command an ever-increasing premium on the labor market, as well as those who have benefited from previous accumulation--to basically pay off the losers, and make them, for all practical purposes--except as consumers--simply go away. Will the "winners" be politically astute enough to buy off the rabble? Or will they risk unrest by failing to stump up? As I said, Clark's nonchalant tone in outlining this nightmarish scenario is noteworthy: I suppose it has something to do with his idea of being a detached "scientist". And in his notion of economics, any idea of an intrinsic dignity to labor certainly doesn't trump consumer preference, and the associated notion of labor as simply a means to the former. As for faith in the power of social movements, he seems to have none. But, then again, I don't have a whole lot these days, either. Many of Clark's arguments are just plain silly. At almost every turn he makes the most unacceptable or plainly misleading generalizations. For example, consider the following: For much of the past 200 years, unskilled workers benefited greatly from capitalism. Before the Industrial Revolution, for example, skilled construction workers earned 50 to 100 percent more than unskilled laborers; today, that premium has fallen to 33 percent in the United States. The era of the two world wars, 1914 to 1945, was one of particularly sharp gains for the wages of unskilled workers, relative to the rest. He makes no mention here of the labor movement, or of the perhaps more important fact that the requirement on the part of competing states and empires to maintain mass armies between the 1860s and the end of the Cold War (in many places) dictated that generous welfare policies, involving active (though insufficient) government efforts to keep employment rates as high as policymakers felt possible (given their other economic goals and assumptions), would determine employment levels as much as, or, at times, far more than levels of technological change alone. Both the labor movement and mass conscription are pretty much things of the past now. But it is arguably this lack--far more than demand (by whomever) for technology that is leading to the situation Clark so nonchalantly remarks upon. But this sort of thing is a social phenomenon, and one that can conceivably be changed by the actors themselves, as well as committed, activist intellectuals--not detached "scientists". And then there's this beauty: Modern society seems comfortable with the rich and poor living in vastly different housing, eating disparate qualities of food and facing radically dissimilar crime risks. No one pickets four-star restaurants because they feed only the rich, or the Waldorf Astoria because only the wealthy can afford to sleep there. But when it comes to medical care, Americans display strong ethical resistance to having the poor receive a substantially inferior product. (Just recall the outrage a few years ago when news reports emerged of Los Angeles hospitals discharging poor patients onto city sidewalks.) Just this week, many Americans have shown that they have no problem with the idea that the poor receive worse or no health coverage at all. For what such polls are worth, The Financial Times reported earlier this week that "[s]upport for Mr. Obama has dropped furthest and fastest among people earning between $60,000 (42,000 euros, 36,000 pounds)and $89,000 a year--those who are likely to have health insurance and fear that they may face higher taxes to pay for the extension of coverage to the almost 50m Americans without it." Then, a couple of lines later, Clark says that the "United States was founded, essentially, on resistance to taxes." This is a simplification of the most boneheaded sort. America was founded on free land for increasing numbers of settlers. The British wanted the settlers to pay for the increasing cost of protection as they expanded the frontier and decimated the native population (the factor that made the land free). This was the taxation the Americans resisted. But the true awfulness of the article concerns Clark's policy prescriptions. He confines these two a choice between two: increased access to education and, as mentioned before, paying off the economically redundant via transfers of wealth. Clark brushes off the education option because of one thing, and one thing alone: grade inflation. He actually seems to be saying that a perceived prevalence of grade inflation in US schools means that any attempt to increase access to education is bound to fail, and will be unable to halt the relentless capital substitution demanded by the stern taskmaster technology. As if cost inflation in education alone had no part to play in this process! Indeed, it's arguable that the grade inflation is part and parcel of an educational system built on profit, just as medical inflation is the result of largely for-profit medicine: the need to graduate more students to keep the tuition dollars flowing in is a consideration regarding higher educational costs just like the need to order the most expensive tests is to medical finance. Also, if Clark wants to mention grade inflation, he should also consider the inflated value of much of the teaching that goes on. He may want to start by examining his own.... And then there's culture. Clark's seeming emphasis on the primacy of revealed preference causes him to neglect completely the role of the culture industry in dumbing us down, well before schools and universities can work their grade magic. I remember seeing something in the British press which may serve as an instructive anecdote here. Some children's program producers were having a party for their kids, and a dressed-up version of one of their creations came in, and was recognized by none of the children. The parents, who would, no doubt, be classified by Clark as "winners" and, as creative artists, relatively unlikely to be replaced by machines, actually shielded their own children from what they produced. "Do you think we let them watch this garbage?" I think was what one of them said. It's a cliche itself, but cultural fast food, like that of the real variety, affects different segments of the society in vastly different ways; and some have no choice but to consume it, while others have whole worlds available, even if they themselves consume their share of the junk. So that leaves the only other option: paying off the losers. Clark actually ends his piece by quoting Marx: "Unfortunately, such measures are only stopgaps. In the end, we may be forced to learn to live in a United States where, by stealth, "from each according to his ability, to each according to his need" becomes the guiding principle of government--or else confront growing, unattended poverty." But to my mind, the biggest error of all in his analysis is his complete disregard for the essential role that the undereducated play--and will continue to play--in our shamefully wasteful economy. Far from being increasingly redundant, as Doug Henwood has remarked, a good amount of the leading employers of the next decade will be industries in which low levels of skill (or of formal education, anyway) will be required: health care, retail, telemarketers, security guards, receptionists, et cetera. According to Henwood, "a quarter of the new jobs will require a bachelors degree or more--but almost twice as many will require no more than short-to-medium term on-the-job trainning. Three quarters will require less than an associate's degree." And he's looking at US Bureau of Labor statistics for 2000-2010 (in 2003). Now this is precisely where Clark would say that the inexorable force of technology will reduce these exceptions rapidly, especially in the wake of a financial crisis that has hit some of the listed industries, like retail, very hard. And 2010 is, after all, only next year. But I don't know how soon it will be before technology will be cheaper than humans in performing many mundane tasks, even if machines are better. There's much talk in Japan about deploying robots to service their rapidly ageing population in a few decades, so that they won't have to rely on unwelcome immigrants. Given the financial state Japan is in now, and the fact that the famed Japanese saver has gone the same way as the almighty Yen, I wonder whether or not even the most jaundiced Japanese retiree will have enough money to pay for the services of a perfectly good robot in a score of years or so. In fact, I'd put my money on the unwelcome immigrant. But there's a deeper problem than this, one that's totally unappreciated, to my mind, by just about everyone, in terms of its ramifications for society. A big reason, to my mind, why the relatively unskilled and uneducated are so important in our economy is the fact that as providers of services like security, child-care, home maintenance and so on, they actually provide the wealthy or more competitive workers with the means to increase their competitive advantage (and that of their progeny) over rivals and, needless to say, the less well-endowed. So it is they, and not just the technology, that allow the best off, many of whom work (unlike earlier elites) incredibly demanding schedules, the time to successfully take in what they need to in order to compete at the highest levels. And this while, at the other end, the rudimentary provisioning of the same sorts of services to the less well-off is becoming de-funded (if it's public) or prohibitively expensive. In this sense, many of our celebrated service workers are performing a social function that is more regressive than their counterparts, who worked as domestics in Victorian times. And if the kind of technological growth Clark envisions continues apace, it is arguable that the place for these "unskilled" workers, anyway, will become more--not less-demanded. And there's one more thing. Clark doubts that increased efforts to improve education and access to it will result in capacity-building to a degree that it will be able to offset technological change. But, as I mentioned before, Clark seems to see no role for the unwashed themselves to rise up and demand more dignified treatment, and a bigger presence in economic decision making. I lamented that this is unlikely, under present conditions, to take place in such a way as to prove Clark wrong politically speaking. But it may come true in a more sinister way. Much of the more publicized "debate" on the health care issue has taken the form of the aggressive assertion of claims that are patently untrue. It's hard for me, sitting in my stifling little room in Cambridge, Massachusetts, to gauge how prevalent these sentiments really are amongst the population, but it's clear that two things are responsible for much of the phenomenon: poor education and the popularity of corporate hate-radio and hate-media amongst the relatively poorly-educated, and especially among those who have suffered most from job losses. If these people were to be paid off, as Clark wishes, to remove themselves permanently from the labor market, would that not potentially lead to the formation of a culture politics of a very dangerous variety? Already the health care issue has shown that, like the Iraq war, warring elites are incapable of doing what needs to be done to keep their gravy train rolling; and that they rely on the active solicitation of cultural warriors to fight their increasingly destructive cultural wars. And, after the healthcare mess goes its ignominious way, there's the climate change issue; and, as the Financial Times reported last week, the oil companies are trying to corral folks for the interminable "town halls" that will take place then. But for the "detached scientist" Clark, these things are of little consequence. It's hard to believe, that in a time as desperate as ours is, that people can stomach this kind of detached, and yet utterly misleading twaddle. Why do we listen to these people? Labels: bailout, Brad DeLong, Doug Henwood, Economist's View, financial crisis, Gregory Clark, Larry Peterson, Marginal Revolution, Richard Sennett, taxation, the dull compulsion of the economic Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). T. D.C.o.t.E (xiii): Flexibility FundamentalismThe Dull Compulsion of the Economic (xiii)A series of blog postings by D&S collective member Larry Peterson Flexibility Fundamentalism Recently The Financial Times featured an analysis of the US labor market entitled End of the Line. The piece was interesting inasmuch as it hinted that the fragility--to put it charitably, indeed--of the US social safety net may foster social tensions that could, in turn, have a negative impact on the flexibility of the US labor market (by leading to greater job protection, etc.). The unquestioned assumption throughout the piece, of course, was that the flexibility of the US labor market has been a good thing, or has had nothing much to do with the county's current economic and financial woes. In fact, the article refers to two prominent economists, Austan Goolsbee and Robert Reich, for tributes, of varying degrees of enthusiasm, to labor market flexibility. Goolsbee, now an adviser to President Obama, wrote in 2007 that "[W]e may be best poised to take advantage of the coming changes on a global scale precisely because we are so good at adjusting. The world economy may be tough on your industry but look on the bright side: you could be French." And former Secretary of Labor Reich, who should know better, was quoted in the article as saying "The US labor market is extraordinarily flexible, [which] in normal times is a great asset." He then goes on to add the following caveat, though: "When you have an economic downdraft like this, that same flexibility can become a severe detriment." Goolsbee's crass triumphalism looks ludicrous now, as the FT points out. It notes that France and Germany now have lower unemployment rates than the US (though both started with higher rates before the crisis began). But what does Reich mean by "normal"? It is now clear that the labor flexibility characteristic of the last few years was, far from being the product of, or reflecting "normal" conditions, made possible by the fostering of not one, but several different anomalies or imbalances. As is well known, median real wages, which had begun to reverse a marked slowdown from the 1970s on by the late 'nineties, were vigorously clawed back after the .com crash, and languished well behind sterling productivity gains until the middle of the next century's first decade, when, again, they began to creep upwards--only to be stopped dead in their tracks by the onset of the financial crisis. The wage contribution to GDP fell sharply as well, and here, as is again well known, real wage gains were captured only by the very, very wealthy. Meanwhile, benefits were falling sharply, especially as healthcare costs (high due to the existence of the dysfunctional US healthcare system, which, while doing little where vital statistics are concerned, contributed to labor market flexibility by making workers more dependent on the boss for healthcare benefits) skyrocketed. The mortgage bubble was enabled by these shortfalls, as a substitute for falling incomes, and as a means to maintain consumption in the face of falling pay packets (not to mention savings). And the consumption surrounding the housing boom played no small role in ballooning current-account deficits. Investment followed this consumption overseas, with US foreign investment tending to trump domestic investment. And foreign investment in the US increasingly became the province of state investors (who tended to purchase US Treasury and agency--Fannie Mae, Freddie Mac, etc--debt) rather than private ones: by the latter part of the decade, the old adage that the US's current-account deficit was a sign of strength--that foreign investors were expressing thereby a vote of confidence in the competitiveness of the US economy, and of its famously flexible labor markets--was becoming something of a joke, though the fact that so many foreigners had invested instead in the US mortgage market revealed that the joke could well end up being on them. But, back to the original point, productive investment did not respond vigorously to productivity gains in the US in the first decade of the twenty-first century, even with the Bush tax cuts to encourage them, or given the vast amounts of cheap borrowed money that were made available to investors as the Fed put the economy on steroids post 9/11. Then there were all the wonderful financial innovations that "lowered the cost of capital" and made capital available to relatively untapped consumers for the first time. These put lots of dollars at consumers' disposal, and enabled consumption to top 70% of national product, even as wages were stagnant (or, for some, even fell) and benefits became more expensive, or disappeared (many companies began to cancel 401K and healthcare programs as the decade wore on) altogether, and workers increasingly had to shoulder simultaneous burdens of saving for retirement, financing children's education, and caring for elderly parents. The hugely inflated costs of the latter trio certainly whittled away at the cheapening effects of the dynamic duo of cheap foreign production and easy consumer financing. Needless to say, practices in the subprime mortgage market topped this distinguished list, but the essential point here is that just about all of these means of maintaining consumer spending were part and parcel of a larger debt bubble, in which financial firms were betting huge amounts of other people's money so they could increase returns on the much smaller sums they put forward (If I take a dollar of mine, and borrow nine of yours, and the investment appreciates by 50%, I get a $5 return, which is pretty good if I've only bet one dollar of my own money--even if I pay a generous rate of interest, or, more likely, high fees). But in reverse, this process becomes pernicious (if I lose 50%, I've lost much more than my $1; and if, being unregulated, I'm not required to hold any reserves, I can go bankrupt after losing my dollar, leaving my creditors holding the bag), and such deleveraging, as Julian Delasantellis has noted, probably has a long way to go before all the rot is purged from the system: "As opposed to today's total government and private-sector debt load of almost $53 trillion, the 20-year period average is down at $43 trillion--that implies another $10 trillion of debt somehow disappearing, being written off, or (the most unlikely case) paid off. In the case of the solely "households and non-profit organizations credit and equity market instruments liability", another $1.2 trillion, in addition to what has already been vaporized, has to be written off as well." So, getting back to the original point, it's hard to understand how Reich can classify the situation of US labor in the last decade (at least) as anything near "normal." As we have seen, not one, but several clearly unhealthy factors either enabled or redoubled an almost masochistic flexibility the core of which, anyway, Reich seems to want somehow to preserve. And we've only spoken here of aspects of flexibility that strictly concern pay and benefits: when one considers work practices, as well as things like public education policy, healthcare and all the other areas that can be collapsed under the umbrella of productivity-enhancers, I would venture that the cutbacks or simple nonperformance in all these areas, again all-to-often implemented or merely accepted in accordance with the gluttonous demands of flexibility, have become, in ever-expanding ways, seriously counterproductive, despite continuing gains to the bottom line (as we shall see in a moment). But the situation could get worse for labor, even if legislative or executive means to increase flexibility are avoided, as they most certainly will be, given the severity of the downturn: in the second quarter of 2009, companies were already cutting costs at furious rates to bleed the semblance of profit from the stone of labor cuts and tax breaks. This is reflected in some truly eye-opening productivity-related figures: for instance, as Goldman Sachs economist Andrew Tilton notes, total hours worked fell at about an 8 percent annual rate in the second quarter, Labor Department data shows. Meanwhile, Tilton thinks second-quarter gross domestic product fell at a more modest 1 percent rate. Tilton then goes on: "That's a 7-point gap, and there have only been a few instances in the last 50 years when it has been that wide. It's particularly unusual at a time when the economy is not growing." Reuters then adds: "Indeed, the gap appears to have widened last quarter. In the first quarter, when GDP fell at a 5.5 percent annual rate, the number of hours worked fell at a 9 percent pace." Indeed, the situation has got so bad that economists are beginning to mix their admiration for US flexibility with fears that it has finally turned overtly pathological (i.e. that it threatens a level of aggregate demand sufficient for any sort of recovery). David Rosenberg of Glushkin Sheff (formerly of Merrill Lynch) claims that there is no evidence that profitability can be maintained on basis of cost cuts alone, and fears that when multiple sectors cut costs, it creates a snowball effect that in turn hurts everyone: "It's one thing when one or two sectors are cutting costs. But when it happens in every sector, this ends up eating into aggregate demand." So far, the Obama administration has not done much to help workers affected by this sort of bloodletting, and with 1.5 million workers expected to exhaust their unemployment benefits by the end of 2009, one would think the situation could become truly explosive. One would hope that the left would be at the forefront of a vigorous effort to concentrate this casual attitude on the part of the administration; and an end to the mythology surrounding the endless benefits of flexible labor markets might constitute a small contribution to such an effort. Labels: Austan Goolsbee, financial crisis, Julian delasantellis, labor, labor law, Larry Peterson, Robert Reich, the dull compulsion of the economic Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). TDCotE (xii): Idealists Should Grow UpThe Dull Compulsion of the Economic (xii)A series of blog postings by D&S collective member Larry Peterson Idealists Should Grow Up I've long harbored a notion that the more modern societies tend to emphasize moral discourse, the less scope actually exists in the same societies to act according to moral precepts in any meaningful or consistent sense; and that all the talk tends more to express--or repress--a sense of helplessness in the face of shrinking agency than any desire to actually encounter the changing world. Hence, I read Onara O'Neil's review of Moral Clarity: A Guide for Grown Up Idealists in FT Weekend (there's no link to it yet that I can see on the FT website) with a sense of weariness and disgust. It's depressing enough to watch the rest of the society get off with on this kind of intellectual and spiritual self-abuse; but when someone gets away with saying that progressives--and, by extension, I suppose, hard leftists--"have nothing to say about...dignity and nobility", as O'Neil claims, I just want to scream. And when she goes on, in the same sentence, to denounce progressives because they "have no heroes", I can no longer just sit back and take it. What ever happened to the left that prided itself on witticisms like (I think this is Brecht) "When they start talking about heroes, it's time to emigrate"? Have we all gone completely soft? It's not that materialists have nothing to say about human dignity and nobility. It's just that, rather than referencing hopelessly vague, and almost-always seriously compromised normative notions, the most admirable leftists have chosen, first and foremost, to let the facts speak for themselves. It is the inevitable contradictions that follow from capitalist social relations that lead, amongst other things, to the decreasing scope of agency that makes personal morality less and less relevant in society. That being the case, it's easy to look round and see how both the economic system, as well as the filthy, sodden superstructural plaster used partially to staunch--and partly to hide--the wounds opened up by the former, fall absurdly short of the promises they deliver. This doesn't mean leftists and progressives don't employ moral standards any less than anyone else; it's just that they realize that an undue reliance on them is unnecessary at best, and hypocritical--hence potentially an obstruction to the sustenance or creation of bonds of true and effective solidarity--at worst. Unfortunately, the fostering of this sort of sense of morality as critique is being increasingly relinquished by progressives. That's why it's all the more important to object whenever people like O'Neill start singing their obfuscatory siren-songs. Labels: Larry Peterson, Onora O'Neill, the dull compulsion of the economic Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). TDCotE (xi): Littlle Zakaria Dresses Like GrownupThe Dull Compulsion of the Economic (xi)A series of blog postings by D&S collective member Larry Peterson Little Zakaria Dresses Like Grownup I usually don't pay much mind to Fareed Zakaria. The Newsweek columnist and frequent television commentator has seemed to me for some time to epitomize most of the familiar failings of the mainstream press: the endless recycling of conventional wisdom, failure to think creatively or with integrity, the obsequiousness towards insiders, you name it: but with a palpable dosage of telegenics thrown in, which no doubt reinforces a "good Muslim" sentiment in its turn. But this week, he published the pompous-sounding "Capitalist Manifesto" in Newsweek, and I found myself reading it, driven by a perverse desire to see how bad it could possibly be. Instead of awful, though, I found the piece totally banal: if this is the best the ruling classes can do by way of propaganda, we socialists shouldn't have much to fear at all. Too bad that propaganda isn't all that matters. The striking thing about Zakaria's piece is that is doesn't amount to much of a manifesto at all. Manifestos, of which Marx and Engels' is the immortal exemplar, both summarize the past and show how past and present trends are set to contribute to a discernable future. Zakaria's piece, except for one brief section which I'll discuss presently, is totally oriented towards the past and present; and all he does is to regurgitate conventional wisdom, as is his wont, for two purposes. First, he wants to say that, despite its unfortunate excesses, capitalism is the most productive means of arranging social production known to man, and, secondly, that for all the talk of crisis, that capitalism isn't likely to be replaced by anything else. In support of the latter idea, he points at similarly dire assessments of the Asian crisis of 1997-8 and the dot.com meltdown, and proclaims that life goes on, with Asia rebounding and Twitter replacing Pets.com. Regarding the former claim, Zakaria takes refuge in paraphrasing that great democrat Winston Churchill (who called Gandhi a "half-naked fakir", and enthused over the carpet-bombing of Arab villages) to the effect that capitalism is the worst system, except for all the others. He also salutes the notion that capitalism has taken more people out of dire poverty in less time than any other system. But most of the essay consists in historical assessments characterized by huge generalizations and simplifications (one example: Zakaria salutes Canada's banking sector, attributing its containment of exposure to the global financial crisis to its conservatism. But it is arguable that Canada's economy, so based on natural resources and exports to the United States--both of which require a certain modicum of stability--could hardly develop a banking sector characterized by free-wheeling deals of the sort Britain or the US did; and Zakaria's breathtaking generalization leaves little room for such subtleties to influence his unruly argument). In this sense, as I said before, his piece is dull, not so much dumb; and one can easily brush aside the tribute to capitalism's productivity by recalling that such successes are disproportionately centered in China, which is hardly capitalist in the conventional sense, and that for all the gains there, there have been huge losses (in healthcare and education, particularly, and one of the chief reasons underlying the world financial crash, the accumulation of excess savings in poor countries, has much to do with the withdrawal of the primitive safety net that existed in China up to the 1980s). And, we must remember that rises in living standards in the developing are being accompanied by the development of huge "precariats" in the developed one. Also, many of the gains of the boom years--in asset values, jobs created, you name it--have been virtually wiped away by the crisis, and will be a long time in returning. So when Zakaria fatuously mentions Twitter replacing Pets.com, he can't extend the same argument about all the jobs created since the mid-nineties that have simply vanished. One more thing Zakaria says that deserves mention: he opines that a world brought to its knees in terms of growth will probably opt for more capitalism, not less, in the coming years. And he refers to economist Robert Schiller, who says more derivatives are required by modern finance, not less, if investments are to be made as efficient and secure as they can be. Regarding the latter, I can only quote from Paul Mason's fine book on the crisis, Meltdown: "however useful derivatives trading might be for finding the true price of shares (and it is), the end result is that profits are funnelled from ordinary savers into the pockets of the rich" (page 78). As long as savings continue to be generated in this lopsided way (and, despite movements in this direction both in the poor and rich worlds, the same situation essentially holds), derivatives will almost certainly be dedicated to destructive uses. Zakaria's comment about growth, along with a few commonplace suggestions on financial re-regulation, are about as much there is regarding the future. A manifesto worthy of the name would be dedicated to teasing out developed suggestions regarding how capitalism will adapt to climate change, the changing balance of power in the world, or perhaps how it will succeed in providing employment opportunities despite the fact that job-creating power is diminished in most upcoming industries compared to their predecessors, or that capitalism seems more challenged where harnessing technology profitably is concerned (consider its retarded uptake of green technologies, biotechnology, and even information technology) anyway. Or how older workers, whose pensions have or will evaporate due to the crisis, are to be re-integrated into the workforce along with legions of youngsters in the developing world. Considering that the former are, in most economic models, supposed to provide much of the demand for the labor of the latter, you'd think a "manifesto" would address this new complication. But all we get from Zakaria is, of all things, an appeal to morality. I have in the past fulminated on the tendency of economists and financial commentators to reduce the crisis to a deficiency in confidence, or "animal spirits", rather than acknowledging the real economic disasters that culminated in the crisis. But Zakaria goes beyond this, opting for the last refuge of the soft-headed, morality, to point toward a future for capitalism: Throughout this essay, I have avoided treating this economic crisis as a grand morality play—a war between good and evil in which demon bankers destroyed all that is good and true about our societies. Complex historical events can rarely be reduced to something so simple. But we are suffering from a moral crisis, too, one that may lie at the heart of our problems. And here's Zakaria's big idea: There's a need for greater self-regulation not simply on Wall Street but also on Pennsylvania Avenue. We get exercised about the immorality of politicians when they're caught in sex scandals. Meanwhile they triple the national debt, enrich their lobbyist friends and write tax loopholes for specific corporations—all perfectly legal—and we regard this as normal. The revolving door between Washington government offices and lobbying firms is so lucrative and so established that anyone pointing out that it is—at base—institutionalized corruption is seen as baying at the moon. Not everything is written down, and not everything that is legally permissible is ethical. Who was the last ex-president to refuse to take a vast donation for his library from a foreign government that he had helped when in office? But the politics of "gut check" have culminated in the victory of Obama, whose "change we can believe in" has consistently amounted to little except (besides rhetoric) the recruitment of the same interests to regulate the downturn as they did the bubble. From financial re-regulation to health care, this administration has committed itself firmly to the least ambitious proposals imaginable to combat intractable problems. In the Communist Manifesto and other works, Marx and Engels spoke eloquently of the ways in which modern production, despite its benumbing and exploitative effects, also contained a progressive element, that of cooperation, which could allow the working class to organize politically and change the productive system in ways that would enhance the latter and potentially be harnessed without the friction of competition to result in a more effective mode of production, as well as one that fostered incalculably greater human happiness. Zakaria, precisely because he does not interest himself adequately in the material forces conditioning conventional wisdom, can say nothing eloquent about his beloved capitalism whatsoever aside from an empty and ineffectual appeal to morality. It's all the more a shame that those material forces have had such a corrosive effect on working class consciousness (and in this respect Marx and Engels did not come close to anticipating actual developments)--and culture generally--that more people are going to look to Zakaria's manifesto than Marx and Engels'. Labels: Barack Obama, Fareed Zakaria, Friedrich Engels, Karl Marx, Larry Peterson, Paul Mason, the dull compulsion of the economic Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). TDCotE (x): 'Life Is Beautiful' EconomicsThe Dull Compulsion of the Economic (x)A series of blog postings by D&S collective member Larry Peterson 'Life Is Beautiful' Economics and the Strange Co-option of Behavioral Economics They're at it again: encouraged by the huge rally in equities globally (especially in emerging markets, some of which were considered doomed just a few weeks ago), more and more financial commentators are referring to behavioral economics in an attempt to indicate that the rally may portend a vigorous economic recovery. The latest instance came in Friday's Financial Times, in which US editor Chrystia Freeland joined the chorus with an article entitled "What a Feeling: How Emotions May Yet Drive the Recovery." I've never been a fan of Freeland's: I think she's easily the most mediocre of the FT's senior staff, and I usually just ignore her usual bland regurgitation of cliches and conventional wisdom. But seeing her refer to behavioral economics really gets me hot and bothered. When I was an undergraduate, I successfully studied graduate-level neuroscience, and have followed developments in what is called behavioral economics (which relies on studies from cognitive psychology and, to a lesser degree, neuroscience) almost since its inception in the 1980s. Accordingly, I think I have a sensibility for both the power and deficiencies of the findings that have been taken up by the new field of behavioral economics which Freeland and a lot of other erstwhile enthusiasts almost certainly don't have. And that's just the start of it. Even recognizing the potential of behavioral economics, I would argue that its use in coming to terms with things like the financial crisis is misguided at best, and ideologically dangerous at worst. Dangerous because I believe a case can be made that it is being used by a discredited profession not only to rehabilitate itself,but to smuggle some of its old, worn-out assumptions in via the back door, dressed up in the garb of cutting-edge science. Let me try to explain. Behavioral economics is a movement that relies on controlled studies to test the validity of economic assumptions that had been--and still are, to some degree--considered axiomatic by conventional practitioners. Usually the experiments take the form of the playing of games: voluntary participants trade tokens or even, in certain cases, real money in simulated exchanges and so on. So, in a celebrated case, experimenters found that subjects overwhelmingly punish free-riders in such exchanges, even when they stand to gain from cooperating. The upshot of such experiments has been the promotion of a new idea of economic rationality, "bounded rationality", which views rationality operating within limits set by norms and other "non-economic" criteria to a significant extent; accordingly, behavioral economists say that the traditional notion of rationality employed by the economics profession must be changed to reflect this, if only because such recognition will allow for greater predictive power in both experiments and even in the construction of economic models. This is important because the most recent paradigm that employed widespread popularity in the profession has clearly fallen out of favor. That paradigm, called "rational expectations", was popular with conventional economists precisely because it seemed to solve what they considered to be a major problem implicit within Keynesianism: the fact that Keynesianism didn't have an underlying microeconomics to support its macroeconomic superstructure. And for economists of this sort, who largely continued to accept some version of Say's law (which Keynes rejected, and stated basically that all production is ultimately undertaken to support consumption, rather than, say, profit-taking, hoarding, or accumulation), Keynes' focus on insufficient aggregate demand was a heresy--it couldn't, to them, sufficiently (i.e. in a way that foregrounded the practitioners' very specific notion of rationality) explain the motives of the individual actors whose choices led to outcomes in which full employment could only be considered a special case; and inasmuch as it did, by referring to liquidity preference and speculation, that could only be reconciled with a vigorous notion of rational self-interest with some difficulty. But it wasn't until the failure of what were considered Keynesian policies in the 'seventies that they found an opening to plug this gap. So, first they criticized the failure of Keynesian macroeconomics, and then proposed a new microeconomics that, it was claimed, could restore the link between good, old-fashioned self-interested rationality and the wonderful workings of a whole market system that equilibrated to full employment after all. This paradigm, which, as many know, was employed originally by members of the Thatcher and Reagan administrations, became renowned for its intransigence: its practitioners stubbornly resisted contributions from economists professing other views, and purged many academic departments, think-tanks and so on of holdouts. And as Thatcherism and Reaganism morphed into Clintonism and Blairism, the situation only got worse. Except on one front: behavioral economics. Why was this? I think the original encounter with it came because economics, which was being aggressively promoted as a science especially by neoliberal technocrats, but also by financiers, academics and journalists, was considered by the dominant practitioners to have to be as open to what, after all, appeared to be the incontrovertible findings of science--especially sciences of the "harder" variety, like neuroscience--as possible. So, economics slowly, kicking and screaming, opened the door to practitioners of behavioral economics just a crack. Also, as the millennium approached, the collapse of Long Term Capital Management, the Asian crisis, and, eventually, the dot.com meltdown finally revealed all too clearly that the predictive power of monetarist models was not all that it was cracked up to be; and this had a lot to do with the vast, global expansion of the financial sector, a sector which, in part, and to a limited degree, could be examined by experiments devised by practitioners of behavioral economics in ways that the notions of rational expectations couldn't. Regardless of the cogency of my interpretation, there is no doubt now that behavioral economics is on the ascent. Practitioners like Cass Sunstein occupy high places in the Obama administration, and the current financial crisis (along with its hyper-aggressive monetary and fiscal interventions) has turned the retreat of the rational expectations school into something of a rout. Meanwhile, Keynesian ideas are resurfacing all over the place. And many behavioral economists are beginning to see their own discipline as the one that may provide that elixir of a slightly different sort than that sought after by the rational expectations school: of a "grand theory" that might unify a brand of Keynesianism, complete with an implicit acceptance of the generality of sub-optimality, with a new notion of bounded rationality--but a rationality all the same, one that can, however provide material for falsifiable experimentation, predictive modeling, and, potentially, optimal policymaking potential. So what's wrong with that? Well, my criticism of behavioral economics focuses on the fact that its predominant use of controlled experiments has, by far, simulated the form of consumer exchanges. For ethical and practical reasons, experimental subjects simply cannot be monitored to the same extent in their capacities as workers, employers, union members or scabs, monitors or even slackers, as they can as simple consumers or even investors. Particularly in cases in which economic behavior is characterized by an asymmetry of real--not simulated--power, it would potentially compromise willing subjects to agree to experimentation, and it's difficult to see how experiments could be devised that controlled adequately for that asymmetry inn the first place. This is all the more the case where the accounting for the impact of underlying initial endowments of capital--of social or monetary variety--or knowledge are concerned. The types of games and experiments so far devised by behavioral economists--even those that employ the most advanced brain scans and so on--simply are least qualified to illustrate anything but the most limited forms of economic behavior. That being the case, to view the findings of behavioral economics as somehow paradigmatic, never mind ultimately fundamental in a microeconomic sense, constitutes to me an extremely dangerous and misleading position. And it is this position that is increasingly being taken up to "explain" the financial crisis, even by people like Freeland, who probably don't know very much about the science in the first place (never mind luminaries like George Akerlof and Robert Shiller, who Freeland refers to in her article). The big problem with all this is that, in the attempt to explain the financial crisis, commentators, following the implicit example set by behavioral economists themselves in many cases, seem quite content to focus on the most limited kind of economic behavior, and thereby bracket out the most important stuff. There is much talk of the transformative power of sentiment, as if the crash itself was an overreaction that could, potentially, be overcome if only government and business are allowed to "nudge", to use Sunstein's term (developed with the aid of one of the founders of behavioral economics, Richard Thaler), investors and consumers out of their excessively pessimistic box. This completely ignores the very real weaknesses in the economy that will almost certainly continue to plague working people and pensioners all over the world, even if surviving corporations, due to drastic, or even unprecedented shakeouts (not to mention government support) in their industries, attain some level of profitability acceptable to the ruling and accumulating classes. In fact, these weaknesses are so great that it's hard to see how they won't adversely affect large swathes of the latter, and reconfigure that stratum in fundamental ways in the next few years. And economists who privilege explanations based on sentiment over the underlying economic situation, far from elucidating the crisis, may be unwitting tools in shaping it--to the detriment of many people; just as methodological individualism (the idea that economics must focus on individual decision making to attain coherence as a science) was smuggled in via the back door, and even after behavioral economics had played a major role in tearing it down in its fundamentalist form, by the experimental bias of behavioral economics, its practitioners seem all too comfortable with the misuse of limited purview of their findings by politicians and commentators banking on a swift, but highly unlikely recovery. A couple of years ago a film came out called "Life is Beautiful", in which, preposterously, perhaps to an offensive degree, an inmate in a concentration camp during the second world war attempted to make the life of a child also interred in the camp bearable by getting it to believe that life in the camp was only a game. Far from providing a new Keynes (and I wouldn't say that's the optimal solution), even the most promising school of economics in these harsh times seems to be content with cobbling together narratives devised for something approximating the same purpose. Labels: behavioral economics, Crystia Freeland, financial crisis, Financial Times, George Akerlof, Keynesianism, Larry Peterson, rational expectations, Robert Shiller, the dull compulsion of the economic Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). The Dull Compulsion of the Economic (ix): ZizekA series of blog postings by D&S collective member Larry PetersonA Meditation on The Monstrosity of Christ OK, that was a seductively incomplete, or even misleading title for this blog entry. The reference is not so much to Jesus Christ as it is to the atheistic, Marxist-inspired philosopher/critic/psychoanalyst/you-name-it Slavoj Zizek, who has teamed up with the theologian John Milbank in this release by MIT Press, and gave a lecture with the same title at the Brattle Theatre in Cambridge, MA on Monday night. Like most of Zizek's offerings, the title involves wordplay (in this case, the signified work seems to be, as will become apparent later, I hope, the mediaeval devotional work The Imitation of Christ, by Thomas à Kempis) which suggests that the object (Christ) is, in fact, of lesser significance than the historical and social conditions that, given their convoluted, not to mention tragic, historical play, or dialectic, if you will, have come to invest the former with an exaggerated significance. And this symptomatic, inevitably perhaps, fosters cultural and institutional distortions that, in this case, ensure that the plain words of Christ will be, in practice, turned upside down (thereby vitiating any real significance they might still hold for us). By coming in intuitive conflict with his "provocative" wordplay, Zizek hopes to provoke a materialist, common sense, Brechtian awakening. Needless to say, to go from Jesus Christ to matters as disparate as the nature of Lee Kuan Yew's regime in Singapore, contemporary capitalism's seemingly inexplicable resuscitation of rent-seeking, and on to the ideological significance of Batman, the Black-Knight, or whatever the hell he was, is no job for an amateur, and Zizek did not disappoint. In what follows, I will attempt to relate what I found to be the breathtaking intellectual ride Zizek led me on that night. I didn't begin to take notes (in the dark, with a pen almost out of ink, and on the 2"x5" ticket to the event), so my rendition will be impressionistic and topical rather than chronological. Still, I found the argument, which, I felt, was not always made fully implicit, to be remarkably tight, in spite of Zizek's far-flung categorical forays. The unifying theme of the lecture, to me, concerned the nature of the "Other" and of freedom in contemporary society. This sounds hokey, but Zizek made it clear from the start, and with the use of very explicit language, that his notion of the "Other" involves all those aspects of other human beings, which, especially in situations or under social conditions characterized by growing duress, tend to be perceived as unwanted and even unjustifiable constraints on freedom the ability of acting persons to do as they see fit. To some degree, the "Other" always impinges on our freedom, and, in certain cases, we readily and willingly hand over our freedom, at least temporarily, anyway: under the sway of charismatic authority, for instance; and even, as many people understand it, in the defining state of human experience or potential, that of love. But Zizek seemed to hone in on cases in which the "Other" is already defined as that which precisely doesn't bear anything close to this kind of distinction, or on cases in which it's all too easy to fall back on available justifications in the culture to employ acceptable pre-existent barriers to prevent the "Other" from turning into something that could trip us up at all on any kind of purported advance toward wish-fulfillment at best, or avoidance of mere discomfort otherwise. Accordingly, the "Other", to Zizek, is the very sort of person who, far from corresponding to the super-abstract, ghostly presence one has come to expect from tendentious postmodern tomes, seems to go out of his or her way to bring out the worst in us, in terms defined by society in the most emphatic and primitive terms it has at its often considerable disposal. Zizek illustrated with a telling example where he wanted to go with this. He mentioned a dinner party he went to with a professor and some graduate students here in Cambridge a while ago at which participants were instructed to introduce themselves by mentioning, besides their names, their profession or concentration, their sexual orientation. Now this is where Zizek, in my recollection, could have been more explicit, but my take was that his discomfort with this experience concerned the fact that it, inasmuch as it attracted no comment or surprise by the participants, seemed to evidence the pervasiveness of an exaggeratedly formalistic attitude towards sexuality which, though seemingly open and accommodative, is in fact restrictive in precisely those matters the society is most intensely conflicted about, and requires open discussion or, if you will, engagement with the "Other" if it is to resolve, or simply acknowledge the existence of, potentially serious conflicts. Let me try to explain what I mean. Zizek seems to see that normative standards, especially in societies which privilege conceptions of the individual, often work more by appealing to self-conceptions (however accurate) rather than (and in precedence to) notions of others, especially those who are on receiving end. That being the case, the seemingly implicit object of the normative attitude, the "Other", almost invariably appears as an imposition to be avoided from the start, and engagements with that Other will tend to be seen from the start as overly restrictive of freedom. Under these conditions, a real temptation to employ normative conceptions in ways that advertise a strictly limited applicability will almost certainly prove popular, especially if constraints on action are already being vigorously enforced by the society in its everyday workings. And contemporary capitalism is doubly indicted on this point: for, as it provides for the meeting of needs (petty or essential, real or confabulated) more efficiently than any system yet created, it encourages demand for further convenience (or potential freedom), but demands more flexibility (or potential constraint) on the part of the vast majority at the same time, precisely in order to produce these means of fulfillment that forever lag behind their ability to provide true freedom or satisfaction (if such things exist). Back to the dinner party. What Zizek is saying here, I think, goes like this: to define the acceptable limits of conversation and conduct, the question about sexuality is presented to the participants. Most likely, the host expected that it would set his or her guests at ease. But any ease on their part was almost certainly ensured by the fact that they were all enlightened, modern, affluent graduate students and faculty. Where sexuality was concerned, however, the implicit message seemed to be this: you look and act enough like us to gain admittance to our party. But if you have some sort of issue with sexuality, we will not recognize it unless it is strictly limited to the sort which has already been decided in a specific way by just about everyone who would conceivably come to this party. So, if you are homosexual or heterosexual, that's ok; but if you are by some small chance just someone who is a loser, and can't find a partner of whatever sort, or some sort of pervert (if only in demand for a cure, or a sliver of sympathy in dealing with being saddled with such monstrous desires), your situation doesn't fall into the category, and will not be discussed. In the even less likely event that someone who has made it through the implicit winnowing process insists on raising it, that person may be subject to censure, justified expulsion or worse. You have been warned! The reference to Christ then becomes clear: Zizek actually spoke of the "neighbor" as the one who trips us (skandalos means "stumbling block" in Greek) up, or limits our freedom. This elicited in me thoughts of the parable of the Good Samaritan, which, unfortunately, Zizek didn't cite. In this parable, Jesus famously spoke of a man who was beaten and robbed, and left beside the road to die. A priest came by, looked at the body, and moved on. A Levite (or member of a privileged religious caste) came along, and did likewise. Finally, a Samaritan came by, took pity on the man, took him to an inn, and nursed him back to health at his expense. That's where the story ends for most of us. Edifying, right? Well, the way Christ told this story, as Zizek would no doubt affirm, involved a startling inversion. Samaritans, at the time of Christ, were referred to in the most derogatory terms possible; so Christ's reference to them then would have the much same effect as if a contemporary Christ used the n-word to refer to the Samaritan in an updated version of the parable. This is where Christ's words force us to truly confront the structural nature of the "Other". And that is why Christ matters to Zizek; it's not because of Jesus' historical significance, but because of our twisted perception of him, and what that reveals about us, and our society. Zizek knows that normative concepts, though liberally thrown around in our society, are becoming, in fact, less relevant in the way we actually live our lives (in part because the market has come to mediate so much more of our lives). This, coupled with the structural narrowing of the spectrum of free movement in capitalist societies mentioned above, almost ensures that normative thought and discourse will increasingly be employed to preemptively build walls around the "Other" than to engage, however tentatively, with the "Other". "Don't even go there" has become the golden rule of post-industrial, globalized capitalism. And it's for this reason that another society is necessary, one that more effectively, and more self-consciously interacts with the "Other", especially when temptations to ignore cascading categories of "Others" seem to build up as fast as the division of labor becomes more specialized. A society of freely associated producers would be a start. And, lest it be forgotten, it is the "monstrosity" of Christ, or his reference to, nay existence as an "Other" (inasmuch as we limit our conceptions of him to their exact opposites, when we entertain them seriously at all), that constitutes our own "Imitation of Christ". And it will only be by affirming his true "monstrosity", or "Otherness" that we may right this image, and perhaps be able to put to use any parts of Christ's message that remain truly relevant in this day and age. I think this was the invisible string that Zizek held tightly to on his tightrope walk on Monday, but he also said many provocative things on sundry issues I'd like to comment on for the remainder of this post. One of the most interesting concerned his meditation on the opening of a split between capitalism and democracy worldwide. This is where he speaks of Lee Kuan Yew and Singapore. Zizek noted that this kind of authoritarian capitalism was in fact adopted as a model by Deng Xiaoping in China, and, earlier, played no small role in the development of South Korea from bombed-out semi-feudal society to post-industrial consumerism in less than two generations. Even Japan has been a one-party state except for a few years in the 1990s since the war. Zizek's take seems to be that capitalism is becoming less able to garner popular support except in societies in which it is rigorously imposed. And in other societies, its growth trajectory will, in all likelihood, be increasingly reduced. This may not be much of a surprise in the wake of the financial crisis, but given the almost religious belief in the symbiosis of capitalism and democracy that held before the crisis (in spite of the experience of places like Singapore) it is a development that requires keen monitoring. Especially if countries like Singapore, which tend to be export-dependent and hold large current account surpluses, diversify into consumer-led economies (remember China's large and growing income inequality), assuming they can successfully (and quickly) make this transition in the first place. Not that Zizek expects a decisive movement towards socialism, or anything of that sort. I think this is precisely why Zizek focuses on his fears regarding a growing incompatibility between capitalism and democracy than on any promise of social movements that exist at the present. But he seems to insinuate something I have noticed myself: in the financial press, a lot has been written on the "failure" of capitalism, even by former Nobel economists (see, for instance, the Financial Times' series "The Future of Capitalism" http://www.ft.com/indepth/capitalism-future). But the same writers are quick to inform us, often in spite of their own recent myopia regarding capitalism's failures, that there is no alternative. Any elaboration on this juxtaposition is completely lacking, except for the employment of platitudes. I think Zizek is hinting that the repressed thought here goes like this: when such commentators speak of no alternative to capitalism, they are really saying that there is no alternative to capitalism unless we can spontaneously and rapidly adapt to the level of freedom which any removal of capitalism (which so effectively meets needs, but so implacably makes new, often unanticipated demands, and while it conditions us to seek out new sources of freedom, or at least seeming satisfactions) will require of us. And, for once, I must agree with these people: it's almost impossible to see us doing this. But it doesn't make it less necessary, especially given the environmental reckoning. Zizek also notes with some tongue-in-cheek perplexity the fact that the most advanced capitalist economies are relying more and more on rent-seeking forms of revenue than on profits from sales (or generation of surplus value, or even exploitation). In strict Marxian terms, this is odd: society should be moving toward intensifying competition with technological advances, not on protection of existing means of production. Like the resuscitation of absolute surplus value (longer working hours), however, it is an indisputable part of the most advanced economies or, again, it was until the crisis hit. In this vein, Zizek cites all the usual suspects: the vast swathes of corporate America, from financial firms which patent their "innovative" investments and business practices to pharmaceutical firms which do the same with life-forms themselves, and on to the advertisers, media and software firms which are being relied upon more and more to balance our still ridiculously high consumption levels (70% of GDP, down only 2% from before the crisis) internationally. Here, I wish Zizek had mentioned another phenomenon, the seeming revival of something corresponding to primitive accumulation, too. He actually did refer to one of the main documentary sources for this phenomenon, Naomi Klein's The Shock Doctrine. But didn't make any connection between these phenomena. And he didn't speak of another area I think he should find most illustrative of the confused condition of contemporary social structures, the rise of shadow and underground economies, and their increasing overlap with legal and visible ones (assuming talk of reform by the G20 and others on tax havens turns out to be characteristic bluster). It seems to me that all these elements must be put together, while acknowledging the old-fashioned super-exploitation that takes place in many of the places from which we source our consumer goods (though these are more-and-more tied to licensing-based industries like media companies and so on to promote them) and commodities. Where all this is relevant, though, concerns the productive sphere explicitly. Zizek sees that Marx's emphasis on the increase in producers' knowledge of their own processes of production and ability to cooperate in that process is being compromised mightily by just about all of the developments mentioned in the last paragraph. It's funny, because I've seen economic commentary that lauds the fact that economically significant competition will occur more between units within the same company as between firms themselves (or that companies will extract profits more from this competition, presumably by reducing costs and protecting technologies, than by competing in markets for goods and services). I'll wrap this up now. I have no doubt that I haven't done justice to Zizek's virtuoso performance (particularly inasmuch as my comments haven't been suitably critical!). But I hope that this post, if it does anything, will encourage others to see or read Zizek: he really does have his finger on a radical pulse that most writers don't even know exists. Labels: cultural theory, ideology, Karl Marx, Larry Peterson, Naomi Klein, Slavoj Zizek, the dull compulsion of the economic Please consider donating to Dollars & Sense and/or subscribing to the magazine (both print and e-subscriptions now available!). |
